View more from News & Articles or Primerus Weekly

By:  Selwyn Black
Carroll & O'Dea
Sydney, Australia

Introduction

With intellectual property increasingly forming a greater part of private wealth, it is interesting to review how the Australian High Court dealt with the Australian Tobacco Plain Packaging Act 2011 (“the TPP Act”), which required retail tobacco products to be sold in plain packaging.  The key issue for the High Court (the Australian equivalent of the US Supreme Court) was whether the TPP Act breached section 51(xxxi) of the Australian constitution.  The case was JT International SA v Commonwealth of Australia; British American Tobacco Australasia Ltd & Ors v The Commonwealth of Australia (“the Plain Packaging Case”).

The parties

The plaintiffs in the Plain Packaging Case were tobacco companies which manufactured, packaged and sold tobacco products. The TPP Act prevented the plaintiffs from exploiting their intellectual property rights on the packaging of their tobacco products which they had previously enjoyed (including the use of trade marks, and goodwill in their tobacco packaging get-up). The plaintiffs argued that this constituted an acquisition of their property not on just terms, in breach of section 51(xxxi) of the Australian constitution. This section reads:

The Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to …  the acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws.

This section may be likened to part of the Fifth Amendment of the US constitution which reads:

Nor shall private property be taken for public use, without just compensation.

The case turned on 2 questions:

  1. Was the plaintiffs’ intellectual property rights ‘property’ for the purpose of section 51(xxxi)?
  2. If the answer to 1 was yes, did any provisions of the TPP Act result in an acquisition of that ‘property’?

Was the plaintiffs’ intellectual property rights ‘property’ for the purpose of section 51(xxxi)?

The High Court recognised that intellectual property rights of the plaintiffs including tobacco related trade marks, cigarette packaging get-up, copyright, design patents, packaging and licensing goodwill, and intellectual property licensing rights fell within the concept of ‘property’ for the purpose of section 51(xxxi). That some intellectual property rights were created by way of legislation was irrelevant to that characterisation.

In making this judgment, the court:

  1. gave consideration to relevant Australian intellectual property legislation and case law which state that intellectual property rights are personal rights; and
  2. rejected the argument that because intellectual property rights:

(a)          served a public purpose; and

(b)          were negative rights in nature,

they could not be characterised as property.

Did any provisions of the TPP Act result in an acquisition of that ‘property’?

The majority of the High Court distinguished between:

  1. the taking of property (a deprivation of property from the perspective of the owner of the property); and
  2. the acquisition of property (a receipt of property from the perspective of the acquirer of the property).

It was held that an acquisition is not made out merely by extinguishing rights.  In other words by prohibiting the exercise of intellectual property rights on cigarette packs, the Government was not appropriating those rights for itself and so there was not a prohibited acquisition by the Government of private property.

Further, the majority judgment noted that such an acquisition has to be proprietary in nature. The Australian Government did not acquire any proprietary benefit from the imposition of the TPP Act on the plaintiffs.  Accordingly the constitutional challenge to the TPP Act failed.

The Fifth Amendment

Interestingly, one of the Australian judges notes the similarities and differences between section 51(xxxi) of the Australian constitution with the relevant part of the Fifth Amendment to the US constitution. Similarities include:

  1. the term ‘property’ in each respective constitution, refer to the group of rights inhering in ownership and not in any “vulgar and untechnical sense”, as stated in United States v General Motors Corporation 323 US 373 at 377-378 (1945).

Differences include:

  1. the Fifth Amendment is expressed as a negative statement, whereas section 51(xxxi) states what action Australian Parliament may positively take.

Other attempts to invalidate the TPP Act

World Trade Organisation challenges

Ukraine, Honduras, Cuba and the Dominican Republic have challenged the Australian laws by filing requests for consultations through the World Trade Organisation, a first step to challenging the Australian laws in the World Trade Organisation.

Hong Kong agreement

Although the TPP Act survived the constitutional challenge of the Plain Packaging Case, a second basis in which it is being contested is pursuant to the 1993 international agreement between the government of Australia and the government of Hong Kong for the promotion and protection of investments (“Hong Kong Agreement”). Philip Morris Asia (“PMA”), another tobacco company, is arguing that the TPP Act breaches:

  1. article 6 of the Hong Kong Agreement (on the basis that Australia is depriving or expropriating Philip Morris Asia’s investments or assets); and
  2. article 2.2 of the Hong Kong Agreement (on the basis that Australia is not treating Philip Morris Asia’s investments fairly and equitably).

This challenge is currently being arbitrated pursuant to United Nations Commission on International Trade Law Arbitration Rules. Australia has won a preliminary battle in this case, with the Permanent Court of Arbitration permitting Australia to challenge Philip Morris Asia’s legal standing in the matter. This is on the basis that Philip Morris Asia (incorporated in Hong Kong) allegedly only purchased shares in its Australian arm in order to allow it to challenge the TPP Act under the Hong Kong Agreement.

The case is set for a three day hearing on preliminary objections in Singapore in early 2015.

For more information about Carroll & O'Dea, please visit the International Society of Primerus Law Firms.